Technology Risk in Business – Challenges of Changing Technology in Business

The changing technology environment has and still become one of the biggest challenges in international business management. Technological changes can wreak havoc on industries. In making decisions regarding technological changes, companies err in two ways. They either commit themselves to a new technology too fast and burn their fingers or wait and watch while another company comes up with a new technology that puts them out of business. The issue of when and how to react to the emergence of a new technology is a matter of judgment. However, this judgment need not be based purely on intuition. By doing a systematic structured analysis of developments in the technological environment and putting in place the necessary organizational mechanisms, technology risk in business can be considerably reduced.

How can managers identify the emergence of a disruptive technology? Clayton Christensen’s research reveals that disruptive technologies are often developed privately by engineers working for established firms. When such technologies are presented to customers, they get a lukewarm response. So, established companies do not give much importance to these technologies. The frustrated engineers consequently join start-ups, who are prepared to look for new customers. Companies must take note when talented scientists and researchers leave them to join start-ups. Often, they do so, to work in an environment where their innovative ideas are taken more seriously.

Companies must also learn to assess the impact of a new technology. The steam engine was developed for pumping water out of flooded mines. It was years before a range of applications was developed in industries and for transportation. Marconi, the inventor of the radio felt that it would mainly be used between two points where communication by wire was impossible. So he targeted shipping companies, the navy and newspapers. Marconi did not even consider the possibility of communicating to several people at the same time. It was left to David Sarnoff, an uneducated Russian who migrated to the US to understand the technology’s potential in broadcasting news and entertainment programs. Bell Labs did not think it necessary to apply for a patent covering the use of laser in telecommunications. Only later did it realize what a powerful combination laser and fiber optics made. Thomas Watson Sr. looked at the computer only as a tool for rapid scientific and data processing calculations. Computers are today mostly used in commercial applications.

Very often, new technologies tend to be primitive when first developed. The full potential of a new technology is sometimes recognized only decades later. Even though the telephone has been around for more than 100 years, applications like voice mail and data transfer have emerged only recently. Aspirin, one of the world’s most widely used drugs, has been around for 100 years, but its efficacy in reducing the incidence of heart attack, due to its blood thinning properties, was discovered much later. So, while evaluating new technologies, a longer time horizon must be used, than for existing technologies.

To better appreciate the impact of a new technology, established companies would do well to go beyond their existing customer base and start talking to potential users whom they have not seriously targeted till now. Conventional planning, budgeting and investment appraisal processes can be counter-productive when applied to disruptive technologies. Creative ideas cannot be filtered through traditional financial screens. Companies must be prepared to jump into the fray and go through a process of learning, instead of waiting for the numbers to start looking good, when the technology gains acceptance.

Companies must also note that technological performance often overshoots market requirements. Consequently, today’s under-performing technology may meet the needs of customers tomorrow. On the other hand, technologies which perform satisfactorily today, may over-perform tomorrow. Customers may not be willing to pay for this over-performance. According to Michael Porter, the basic aim of differentiation is to provide something extra that the customers value and charge a premium for it. If customers do not value the additional features, differentiation as a competitive strategy will not be effective. So, if a new technology fares relatively low on some of the currently accepted attributes, but scores heavily on a new attribute, it has the potential to unseat the older technology. Thus, in the disk drive industry, capacity became less important, and factors such as physical size and reliability became the more important attributes.

To understand and work with new technologies, the critical requirement is a new mindset. Established players are not short of financial muscle or talented manpower. But, they have a mindset problem. On the other hand, the successful innovators often have less resources but the right mindset. They worry less about what the technology can do and instead, look for markets which will be happy with the current performance levels.

One way to encourage a new mindset is to create small empowered teams, outside the main organization and allow them to try new technologies. Since entrenched processes and values stand in the way of change, a separate organization is a more practical arrangement than grandiose attempts to change the entire company’s culture.